The Beyond Profit Story So Far

I attended a private gathering of about two dozen Fellows of the Royal Society of Arts in Manhattan on June 25, 2008. The RSA is a 255-year-old British social change organization. They tell me there are about 27,000 Fellows worldwide, with about 800 Fellows in the U.S.

The organizer asked Fellows to submit brief descriptions of problems they thought might make worthy RSA projects.

I wrote that funding early stage ventures was highly inefficient and difficult, but funding early stage social benefit ventures was even more difficult. It seemed to me that accelerating the successful growth of social benefit ventures ought to be a high priority in the venture field. I knew this from first-hand experience, having spent nearly two decades in traditional venture development and the last six years developing two social benefit ventures.

The Fellows thought this was a worthwhile problem. I was working full time on another project at the time so I was happy to have someone else take the lead, but no one stepped up. RSA leadership kept after me. Finally, I wrote a draft summary for a venture called Beyond Profit Social and Eco-Venture Capital. The original idea was that Beyond Profit was an angel fund whose mission would be to accelerate the successful growth of ventures with a mission beyond profit.

For nearly the entire year the idea was never far from my mind. All the while I wrestled with one very thorny fundamental issue  – How could a for-profit venture consulting and private equity fund be legally organized to accept investments from nonprofits, foundations and market rate investors?

The answer is an L3C. Chris Ballard and Tim Damschroder, attorneys at the Bodman law firm deserve the credit for bringing this new form of entity to my attention in May. You can learn more about L3C’s here. Beyond Profit Venture Partners L3C is a legal entity as of July 2, 2009, with an address in the Bay Area Hub in Berkeley and a simple site.

 

The Fledgling Fourth Sector

Beyond Profit’s social enterprise niche has a name – Who knew?  Chip Fleiss at Harvard’s Kennedy School wrote about  The Fourth Sector in the Financial Times. He defines it as “…a for-profit/non-profit or hybrid business, using private investment to work on common-good social problems.”

 

Beyond Profit Exists (but not yet as a site).

As of July 2, ’09 Beyond Profit Venture Partners L3C is a legal entity.

 

New Urbanism and the Vernacular Theory of Mind

The annual University of Notre Dame School of Architecture Driehaus Prize events were held this past weekend in Chicago. I was fortunate to attend, along with my dear friend and colleague Kevin Hart AIA, FRSA.

Kevin handed me a printed version of the acceptance address Andrés Duany delivered when he was awarded the Prize in 2008. You can read this remarkable document here.

Duany contributes an inspired manifesto to the new urban conversation, proposing a ‘new ethos’ that would expand the classical architectural canon to engage the 21st century by using folk vernacular as the springboard for transcending the authority of masters and masterpieces.

Duany makes a hugely valuable distinction between vernacular style and the vernacular mind:

Not “the vernacular,” which is a style, but the vernacular mind, which is the way of folk art. It is the ability to compose from memory and circumstance, with found materials, of working sequentially through anything and everything, with craft but not perfection.

Duany argues for tapping the power of the vernacular mind to claim “an enormous amount of new territory” for architectural classicism and the high peaks of 21st century architecture. Hats off!

Theory of mind is also on the mind of economist Robert J. Shiller, who ponders theory of mind in relation to the current financial crisis and economic forecasts in his recent article, “It Pays to Understand the Mind-Set.”

As Schiller describes, theory of mind is “defined by cognitive scientists as humans’ innate ability, evolved over millions of years, to judge others’ changing thinking, their understandings, their intentions, their pretenses. It is a judgment facility, quite different from our quantitative faculties.”

Only good things can happen when esteemed town planners and economists start talking about theory of mind.

More on cognitive science and theory of mind is available at the Stanford Encyclopedia of Philosophy.

 

Cash for Trash? D’oh!

Cash for Trash? D'oh!

Wall Street cheered today on the announcement of the newest version of the toxic assets disposal plan.

Wall Street, March 23, 2009 courtesy of Google Finance

No wonder. Investors can’t lose. Only taxpayers can lose. The government is subsidizing investors’ purchase of these bad assets. Asset values go down, investors walk. Assets go up, investors make money. Nice deal. I wish the rest of us could get deals like that.

I want to be happy about this. Really. But what happens when we discover this didn’t work?

Source for the illustration and explanation of d’oh.

Paul Krugman’s op ed is the “cash for trash” source. Check out the flak from Larry Summers.

 

Plato and Madoff Mashup

Plato

Everything that deceives can be said to enchant. – Plato

Daphne Merkin nailed the Madoff persona in her piece “If Looks Could Steal.” Madoff’s clients were believers. Here is a sample of her insightful analysis:

Given the demonization of Mr. Madoff and the intense sympathy for the plight of those smaller investors who trusted him, it is easy to forget that he actually did bring something to the table. Indeed, what is lost amid the fury of some of those who handed their money over to him is that theirs was a voluntary — nay, eager — association. No one was holding a gun to anyone’s head, saying sign up with Mr. Madoff or else.

Far from it: people scrambled to find a home within his financial orbit, auditioning for the role of Madoff client the way you would try out for a place at an Ivy League college, nudging connections to put in a good word, calling in favors to get in on a piece of the Madoff action. (Although those who were duped are referred to in the press as “victims,” it seems to me it would be more accurate to define them as casualties. Victims are specifically sought out; casualties are an indirect consequence of some larger action.)

What Mr. Madoff brought to the table, I think, was a sense of mishpocha, of being part of an extended family, but one you carefully chose rather than being arbitrarily born into. He seemed to humanize the cold, frequently anonymous business of investing by giving it an avuncular face. By all accounts, he was the quintessential nice guy.

Brilliant.

Link to the illustration and more on Plato.

 

Keep Calm and Carry On

Timely. Perseverance redux, British style. The BBC and PRI’s covered the story about the resurgence of this British World War II poster. Get the swag here.

 

From Wealth to Prosperity: A Rail Transit Example

Is this a time of pause between episodes of American commercial wealth-creation, as David Brooks wrote today in his Times OpEd The Commercial Republic, or is it a time of fundamental transition in American ideology, from individual wealth creation by commercial capitalism to a more broad-based, socially-equitable, environmentally sustainable prosperity? I am hoping for the latter and working toward that transition.

It is time to change tax policies in ways that change economic incentives and thus the direction of investment and commercial activity, environmental quality and the quality of life and urban experience.

We are living with the consequences of personal wealth-creation tax policies that are dangerously close to bringing abut the collapse of the very systems upon which wealth creation depends.

The widely-admired Swiss public rail transit system is a good example of taxation policies that distribute wealth more equitably. An enlightening sixteen-page pdf comparison of the Swiss and American public transit programs is available here. It is a stark comparison.

Urs Ziswiler, Switzerland’s Ambassador to the U.S. summed up the underlying requirement, saying “Public transportation only works with strong public commitment.” Such widespread commitment has not yet emerged in the U.S., but a groundswell is building.

 

Things That Can’t Go On Forever Don’t

These early days of Parry Transit are being lived in economic times as challenging as any in the past century, with the possible exception of the early 1930s. Unfortunately, even tragically, the distinction between those days and these appears to be blurring.

I see the bright side, and continue undaunted, guided by the wise observation of economist Herb Stein, who  famously said, “Things that cannot go on forever usually don’t”. I believe we will look back and say, “That was the time when things that couldn’t go on forever stopped going on.”

 

Allergic to Skeptics.

Entrepreneurs of early stage, high-growth, tech-centered ventures – like me – depend on venture capitalists. True VCs are a breed apart from other investors. They understand the three big early stage risks – technology, finance and management – and they bring valuable talent to bear on mitigating those risks in return for a handsome upside return if things work. They also understand that despite best efforts, the odds of success are long, so they diversify their portfolio to mitigate the risk of being a VC.

Beneficial money – so-called smart money – decreases risk and adds material benefit. Part of the entrepreneur’s job, therefore, includes seeing the venture from the VC’s point of view, reducing friction so the venture rolls more easily when value-added money increases momentum, counteracting drag. The goal is to grease the wheels and keep them on.

That grease is a powerful force for good in the quest for safety, security, stability and return on investment. Keeping things well-greased involves blurring the line between rationality and intuition. Rationality is necessary but insufficient. Creative skills are equally important. In my case, design training really helps.

Spending time inside an early stage growth company can be a memorable experience because synergy creates energy, making early stage companies alluring and seductive, even infectious. [Apple is revered in part because it is a singular example of a large company that innovates and designs like an early stage company, making it alluring and seductive for consumers seeking the thrill of associating with this type of energy. Best wishes for a complete recovery, Mr. Jobs, and god speed to those who are stepping up in his absence.]

It takes courage to be a true VC. The type of investor I am allergic to is the more cautious investor who uses skepticism to masquerade as a true venture capitalist, but who is really looking for low risk in a high-risk investing arena.

The skeptic “overstands” all the above intellectually, but does not “understand” that on the early stage playing field, guts and money are different commodities. The problem isn’t the caution, it is the hidden agenda.

The original Skeptics were members of an ancient Greek school of philosophy who argued that real knowledge of things is impossible. Their descendants are skeptics with a small ‘s’ who doubt or question the possibility of real knowledge of any kind.

This type of skepticism is analytic, aimed at cogent assessment. The purpose is inquiry, not criticism. I have no inherent allergy to this type of skeptic or Skepticism as a philosophical position. In fact, questioning the validity or authenticity of something purporting to be factual can be valuable. For example, we all would have benefited if we had paid closer attention to skeptics concerned about the purported facts about the interest rates on adjustable rate home mortgages or the ratings of CDO’s and other derivative investments by Standard & Poor’s or Moody’s.

The skeptic I am allergic to is the person who maintains a doubting attitude regardless of the assessment. The purpose of the assessment, which sometimes is only revealed over time, betrays a hidden and contradictory skeptical agenda whereby doubts about values, plans, statements, or even the character of others are intended to enforce the superiority of the skeptic’s values, plans and statements.

The skeptic’s unstated aim in the most extreme cases is to render the Other irrelevant. Interactions with this type of skeptic go nowhere good, devolving into power struggles over the legitimacy of purported facts and plans, revealing a fundamental belief that theirs are the better choices. Instead of saying, “Let’s get heads together to devise our unique brand of grease, the skeptic essentially says, “My brand of grease is better than your brand of grease.” This is unhelpful.

I might as well go all the down the rabbit hole and explain that this type of skeptic reminds me of the parable of the Grand Inquisitor in Dostoevsky’s The Brothers Karamazov, which I studied in undergrad philosophy, in which the Grand Inquisitor decides that Jesus is irrelevant. The parable uses religion to raise larger issues of belief.

The Grand Inquisitor recounts the responses Jesus makes to three questions Satan asked Jesus during his temptation in the desert. On the basis of those responses, the Grand Inquisitor determines that Jesus believes that humans have the freedom to choose. The Grand Inquisitor holds a different position – most humans do not have the freedom to choose. Therefore, the Grand Inquisitor decides that Jesus is irrelevant because by his responses to Satan, Jesus has excluded the majority of humanity from redemption and thus doomed humanity to suffer.

In my view, suffering is optional; therefore, interacting with skeptics is voluntary. My choice is not to be confused with solipsism. I will leave that topic for another time. But if you want to go down that rabbit hole, here is the link to solipsism at the Stanford Encyclopedia of Philosophy.